Exchange Rate Pass-Through and Currency Invoicing: Implications for Monetary Integration in East Asia

Exporter's price-setting behaviour and currency invoicing play a key role in the literature on the new open-economy macroeconomics. This paper estimates exchange rate pass-through coefficients for the exports of four ASEAN countries: Indonesia, Malaysia, the Philippines and Thailand. In addition, previous estimates of pass-through as well as invoicing behaviour in East Asia are discussed in the context of regional integration. The new pass-through coefficients are estimated under two alternate specifications for up to 34 goods for each of the four ASEAN countries destined for up to 13 major markets. The results suggest: (a) little pass-through is occurring in Southeast Asia and (b) this lack of pass-through is more likely attributable to the fact that they are small countries in a relatively integrated market, rather than evidence of pricing to market. The implications for regional monetary integration of this apparently low degree of pass-through are detailed.